A new law adds to restrictions on companies that issue credit. The bill will curb sudden interest rate increases and hidden fees, requiring card companies to tell customers of rate increases 45 days in advance. It will also make it harder for some people under 21 to obtain credit cards.

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Don't bury yourself with credit card

Article by: Andrew Newman

May 24, 2009 - 11:07 AM

There comes a time in every young person's life to face facts and join the real world -- and that usually means applying for a credit card.

Easier said than done sometimes. And these days, who really wants to get into the credit game? It's so easy to spend, and so easy to get into debt -- especially if you've never had credit before.

Still, it's probably better to have a card -- for emergencies at the very least. So now that school is out and making money full time is in, it's time for this 22-year-old to get his own piece of plastic.

A dangerous game

The first decision: What exactly am I going to use this card for? I hear stories everyday about people who have thousands of dollars in credit card debt, and I definitely don't want to end up like that.

But I also don't want to get it and then never use it. I want to be able to use it comfortably -- for nights on the town or occasional trips to Target without just assuming that I'll have enough money to pay it off later.

And in today's economy, the credit card can be a tricky thing -- particularly for people my age. A recent survey commissioned by Qvisory found that 62 percent of young adults -- under age 30 -- reported having a credit card, and almost half of them said they had credit card debt.

What's more, 26 percent of those in debt owed $10,000 or more.

Qvisory.org, a nonprofit online organization, offers lifestyle, financial and career advice to young adults across the country. But for David Weliver, a contributor to Qvisory and founder of MoneyUnder30.com, these problems have been brewing for a while.

"A few years ago we were experiencing the things that everybody's experiencing today," Weliver said of the under-30 crowd. "We weren't keeping pace with the cost of living, our credit card interest rates were going up, we didn't have health insurance. These are all issues we've been facing for a few years now, and are presumably getting worse."

I want to avoid those problems. But how?

Weliver said there are two smart ways of thinking about credit cards.

•Budget all the monthly charges you plan to make and pay the balance in full every month -- if you think you have the discipline to do so. "Think of it as a bill that's no different than your rent, and you pay it every single month," he said.

•The other method, if you're worried about going overboard on charges, is to use the card only for emergencies -- such as if you're out of gas and don't have enough money in your checking account. "Really the only way to know is to try it," he said. "But I think if you get one credit card -- and if it's your first, there's not much need for more than that -- you can't get into too much trouble. Hopefully."

The search

Armed with Weliver's advice, I set out to apply for my first card. Like many University of Minnesota students, I have an account at TCF Bank. But TCF doesn't offer any credit cards, so that's out. Wells Fargo has options for first-time credit card customers, but it generally offers credit cards only to existing customers.

Which brought me to U.S. Bank. You don't have to have a previous relationship with the bank to apply for a card, and it offers several options for young people with little or no credit history.

"We have a student Visa card," said Dana Jabs, a customer service manager. "A person who has no credit history at all -- so a zero credit score -- can actually get approved for it. Most of the time, when they turn 18, that's exactly their situation: They have nothing."

The student cards all have very low limits -- no more than $2,000. The cards also can lead to a nonstudent card after graduation -- an introduction to the world of credit.

But I actually have a little credit history, thanks to a few student loans and a car loan I cosigned. So instead of wading into the pool with a student card, I launched straight into the big leagues: the Visa Platinum cards.

I'm only planning on spending a few hundred dollars a month on my card, so I decide to go with the Select Rewards Visa Platinum card. Its credit limit is determined by my income (which is not too much) and credit score (which isn't all that bad.) I earn 1 rewards point for every dollar I spend, and those points count toward gift cards, merchandise and other goodies that make my eyes sparkle.

And there's no annual fee, so long as I use the card at least once a year.

"Basically, you can pick what you want to get out of this card," Jabs said.

Applying for the card

The decision has been made. Jabs leads me through the usual application: I give her my driver's license, Social Security number, phone number -- all that good stuff. A few keystrokes and mouse clicks later, the deal is done. Less than a minute after my application was submitted, she turns to me and says:

"You must have awesome credit, because it's going to go right to approval mode."

I was approved for a limit of $5,000 with 0 percent interest for six months on purchases -- something I shouldn't take for granted.

"Sometimes that can suck people in and make them spend a lot of money," Jabs said, who urged me not to spend more than 20 percent of the credit limit in a month.

One last agreement, and everything's done. Come two weeks, I'll really be an adult.

So now it's on me. I've got to keep on my toes about the charges I make, especially right out of the gate.

Rushing out to upgrade my home entertainment center would be a big mistake right now. It's time to really separate my needs from my wants, because it's what I want that'll probably get me in trouble.

Andrew Newman is a Twin Cities-based freelance writer. His e-mail address is newma180@umn.edu.